newsinsights

Browse our recent blogs, articles and papers below and sign up here for our regular newsletter. 

Emerging Markets and Ecommerce Monthly Report | June

Learn more about our Emerging Markets ETF 

Key Takeaways:

May was a busy month of earnings. The first quarter results show an encouraging sign that beyond short-term volatility our companies continue to grow at noteworthy rates. We briefly highlight some of the key constituents of our Emerging Markets ETF below:   

  • Tencent sales increased 25% to $21 billion during the quarter as it maintained growth momentum across all its core verticals, including gaming and advertising. The number of users on its WeChat super app grew 3% to 1.2 billion.[1]
  • Alibaba sales jumped 64% as the number of users across its global platforms surpassed one billion.[2] While the company paid a one-time anti-trust fine during the quarter, its cash reserves still stand at over $70 billion.[3]
  • In Latin America, Mercadolibre’s growth continued to accelerate as its sales more than doubled, driven by strong growth in both its e-commerce segment and its burgeoning payments arm.
  • In Southeast Asia, sales of Sea Limited grew by an impressive 146%, buoyed by strong growth in its e-commerce arm. In a recent report spearheaded by Google, analysts estimate that the internet economy in SE Asia could triple by 2025. Sea remains in a solid position to capitalise on that.[4]
  • China's major e-commerce platforms including JD and Alibaba's Tmall kicked off this year’s 618 mid-year shopping festival earlier this month. Some of the early statistics are quite encouraging. Alibaba has seen vendor signups more than double from the same period last year. Meanwhile JD.com has launched 1 hour delivery across 1400 cities.
  • Gojek merged with Tokopedia to create a tech giant in Indonesia. The combined entity offers everything from e-commerce and food delivery to car sharing. The new entity, called “GoTo” is expected to IPO sometime later this year.
  • India’s most valuable unicorn and fintech super app, Paytm, has announced plans to list in November.

 

Performance Review

Emerging Markets ETF Performance (EMQQ)

May

12 Month*

-3.22%

54.13%

 

Past performance is no guarantee of future performance. Source: Bloomberg, Solactive, HANetf *12 Month figures based on 29.05.20 -31.05.21.

 

The Emerging Markets and Ecommerce UCITS ETF (EMQQ) has posted a trailing 1 year north of 50% as of May 2021.

While May continued the recent downtrend in performance, the month closed off with a series of encouraging quarterly results, which suggests that online habits formed during the pandemic will indeed remain sticky. The leading contributors to EMQQ’s performance CY are Sea Limited and Netease, posting gains over 27% and 23% respectively. Both were buoyed by strong results while Netease got an added boost from news that it plans to separately list its music streaming business in Hong Kong.

The two largest detractors for the first five months are Pinduoduo and Kuaishou, dropping over 29% and 53% respectively. While Pinduoduo has briefly stalled after a strong performance in 2020 we expect its robust quarterly results to provide support moving forward. Sales grew 239% while increasing operating leverage helped improve the company’s profitability. Meanwhile, growth in Kuaishou’s livestreaming segment has decelerated, although it continues to make big gains in other verticals.

Past performance is no guarantee of future performance. Source: Big Tree Capital/ Bloomberg.

 

EMQQ Performance

 


1M

3M

6M

YTD

12M

SI

EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (Acc)

-3.22%

-12.31%

3.44%

-3.17%

54.13%

98.59%

EMQQ Emerging Markets Internet & Ecommerce Index™

-3.17%

-12.21%

3.84%

-2.88%

55.53%

104.90%

 

Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/2021

 

Industry News

First Quarter Earnings: Below is a snippet of how some of our top companies fared in Q1 from a sales growth perspective. Both in and out of China, we saw our companies deliver robust results, suggesting that digital habits from 2020 are becoming more and more entrenched. Our two largest holdings helped lead the charge. Despite being one of the clearest beneficiaries of the COVID-19 last year, Tencent still managed to post sales growth of 25% this past quarter against a strong base.[5] Moving forward, management projects revenue growth to accelerate to 30% in 2021. Alibaba expects a similar rate of growth for this fiscal year. While the latter had to pay a $2.8 billion anti-monopoly fine during the quarter,[6] the company still has over $70 billion of cash and cash equivalents on its balance sheet.[7] Other results captured below.

For illustrative purposes only. Past performance is no guarantee of future performance. Source of all data: Big Tree Capital/ Bloomberg. Data as of 31/05/2021

 

618 Shopping Festival: Chinese ecommerce companies have become experts at concocting new reasons to buy things online. May 20 was once just another day, but because of the date's accidental similarity in Chinese to the phrase "I love you," it has morphed into a Chinese version of Valentine's Day and eventually, one of China's biggest online shopping holidays. It is followed by June 18th (known as 618), which JD.com has designated as a shopping holiday to commemorate its founding. The multi-week event kicked off in late May. A series of EMQQ companies from Alibaba to JD are playing their part by simplifying the process for merchants to participate in the event and dramatically lowering the delivery times. As a result, the number of merchants participating in this year’s event have more than doubled and the consumer reaction looks robust out the gate.

Growing Opportunities in SE Asia: In Indonesia, ride-hailing and payments giant Gojek agreed to combine with e-commerce pioneer PT Tokopedia to create the largest internet company in Indonesia, before seeking a stock-market debut in the U.S later this year. The combined entity is set to form a powerhouse in the world’s fourth most-populous nation, encompassing businesses from car-sharing and fintech to online shopping and delivery. The companies said they will form a holding company called GoTo through a deal backed by shareholders including Google and Alibaba. According to a report commissioned by consulting firm Bain, the internet economy in Southeast Asia is expected to triple to $300 billion by 2025.[8] That backdrop provides plenty of opportunity for companies such as GoTo and Sea Limited. 

Meanwhile in India: India’s largest unicorn, Patym, is solidifying plans to raise nearly $3 billion in what would be the country’s largest IPO debut.[9] Like Alipay and Tencent in China, Patym has helped spearheaded mobile wallets and QR codes in India. Over time it has expanded into a series of other financial services to help service the needs of India’s huge landscape of small and medium enterprises. Paytm is expected to join a wave of Indian internet companies that are expected to list in the next 18 months, including the country’s largest e-commerce platform Flipkart.

 

Outlook

The Digital Revolution Just Getting Started: When McKinsey and Co published a research piece back in 2012 on the rising emerging market consumer wave, they called it “the biggest growth opportunity in the history of capitalism”. A hyperbolic claim to be sure but a statement that planted the seed that lead to the creation of EMQQ and now the best barometer to providing the evidence for such a claim. Having posted performance numbers that put the index at the top of its respective category, we see 2021 as a unique tipping point in this global digital revolution story. With China providing the lion’s share of growth in the ecommerce and internet space for the past decade, we are now seeing the second leg of growth coming from geographies that were slower to adoption but comparably powerful in population and scale. The likes of India, Africa, Southeast Asia, and South America will drive the second half of this transformational story as hundreds of millions have yet to obtain a smartphone.

Gen-Z Will Write the Next Chapters: This next wave will come from the world’s youth with 9 out of 10 Gen Z coming from emerging markets. The consumption preferences that will be shaped by this demographic will prefer not to use cash but mobile payments, prefer streaming content over any cable provider, watch more esports than traditional sports, and certainly favour e-commerce over the mall.

Where the Growth is: Broad based indexes for EM we believe represent a significant value trap being saturated with SOE’s and consequently depressed valuations with little growth. The isolated internet & ecommerce names represent some of the strongest growth rates not just for a few names but the entire sector.

 

Visit our Emerging Markets ETF fund page here.

Tell us how we can help